Archive for the ‘Lending Code’ Category

I have commented on the main new parts of the new Lending Code in previous blogs here over the past two or three weeks.

Before outlining the code section by section I will show the new numbering that is going to be important to all those using or needing to refer to it. This is more or less the content listing, but important as a a guide – a sort of drop-down menu. For ease (lc) will refer to the new Lending Code and (bc) to the defunct Banking Code.

Introduction: This has been changed to reflect the legal and regulatory changes that affect the code.

Section 2: Communications and financial promotions appears to be a gathering together of these matters, but mainly section 3 (bc).

Section 3: Credit reference agencies At first glance this appears again to be a consolidation of matters more scattered in the (bc), but mainly in section 13.

Section 4: Credit assessment looks new, and certainly is a move to more openness and transparency in bank operation. It may also be a response to criticism of the ‘largesse scattering’ by lenders in the past decade in particular.

Section 5: Current accounts overdrafts This section looks as though it may be new. Again a matter of transparency and clear information about bank methods.

Section 6: Credit cards These have become a gigantic part of the loans market, and so now justify a longer and more detailed section; previously section 10 (bc).

Section 7: Loans appears to be part of the old section 13 (bc).

Section 8: Terms and conditions looks like a new – and short – clarification of how signatories should ensure customers understand the terms and condition surrounding a loan.

Section 9: Financial difficulties Replaces section 14 (bc). There are important additions and changes. I have already given some detail on this in the blog.

Section 10: Complaints replaces section 15 (bc). It is updated of course, in line with the regulatory changes.

Section: 11: Monitoring is more or less the old brief section 16.

Annex A: Summary box for unsecured loans is like a template or guide to code subscribers.

Annex B: Statement of Principles for micro-enterprises I have dealt with at some length already. It also appears to cove the getting help information from section 17 (bc).

I think the Glossary has not been carried over to the new code, but perhaps that can be corrected soon.

Joseph Harris – Debt Control Man

Author: Control Your Debt Crisis on Your Own Terms
http:www.controlyourdebtcrisis.co.uk

Mouths appear to have dropped open everywhere at the decision of the law lords on bank charges. Certainly it is difficult to understand on what basis the decision was made.First let us be clear what they – appear, anyway – to have said. This is only that the Office of Fair Trading does not have legal power to investigate value for money.

What they have NOT said is whether the charges were, or were not, value for money. Nor whether the charges were fair or unfair.

Indeed, their decision is correctly being described as a technicality. In other words, no matter what the case itself is about, the manner of conducting either the case, or the matters contributing to the case, were incorrect on procedural grounds. At least their opinion is that it is incorrect in that way.

I am not a law lord; evident as it may already be to you, I want it to be clear!

But I have great difficulty in seeing how the Office of Fair Trading is not empowered to investigate value for money. This has been at the heart of trading rules and laws for as long as recorded history.

From the standards for weights and money itself, to the arcane details of contract, value for money has been at the heart of legislative process. How can fairness be expressed without reference to value for money?

I am not even sure this is in keeping with the new Lending Code!

My advice is to move your accounts away from the big banks. Many of the building societies have much more reasonable approaches. And the Co-op Bank may be another good repository for your current account. Certainly you are going to have to spend time and though reading the terms and conditions.

Perhaps we should look to a funny little comment by a correspondent on TV tonight. This was to the effect that the cost to the banks would be billions of pounds, and that was concerning the highest ranks of government.

Perhaps once again we are seeing the unreasoned triumph of the banks over the people. Welcome to the new feudalism.

It is perhaps ungrateful of me to start with a gripe. But I do not like the idea of major lenders being involved with micro-finance. Somehow it seems to deny the very purpose of the idea. But perhaps I am more minded of the origins of micro-finance, in developing countries, to aid those needing small sums to start a truly small business.

However the code has the BBA Statement of Principles as Annex B. It is a pity, that the British BBA, quotes figures in Euros and not good British pounds in this.

First the principles make clear that the bank has an obligation to ensure clarity for the borrower, and that it should advise the customer to seek advice on the bank’s proposal. Certainly a desirable approach.

The obvious exchanges of information through the finance period are set out, and this makes for clarity. There may also be independent reviews of the micro-business – though without clarity about how the reviewer will be chosen.

While it can be painful where it happens the principles wisely state that any harsh realities need to be faced and acted upon. this can, of course, include closing the business. Facing it when the signs are clear will be better for the micro-finance borrower, I agree.

As a sort of mixed ‘we are on your side’ message there is also the statement promising no legal action if… essentially closing the business when advised. Again it looks quite harsh, but it does make better sense to ‘live to fight another day’.

The banks clearly reserve the right to confirm that appointing a receiver would be the right action, and I can’t see them arguing against it; I’m not sure what that provision is for, since it would be in the contracts anyway, I would have thought.

The complaints procedures are similar to the individual borrower’s and I will deal with that in a later blog here.

But there is particularly a requirement on the lender to enable moving an account to another bank.

It has undoubtedly strengthened the content of the new Lending Code to put the previous guidelines into the body of code. In this section it has not only been incorporated, but the order and groupings have been made more logical.There have been some changes that limit the extent to which debtors were supposed to comply, and this is wise. I don’t think it removes the duty on a debtor to behave responsibly, but since few debtors will see or read the code before falling into arrears it makes no sense to appear to place an obligation on them in the code itself.There are nearly 50 paragraphs altogether in this part and, if they are enforced well, make a good basis for negotiation.Most interesting of all, perhaps, is the inclusion of a paragraph on treatment of micro-enterprise borrowers. I shall discuss this next time, and then cover the parts of the financial difficulties’ section, before describing the rest of the code.Joseph Harris – Debt Control Man

183. Further and more detailed good practice guidelines have been produced by MALG and are available at: http://www.moneyadvicetrust.org/download.asp . The MALG guidelines will not be monitored and enforced by the Lending Standards Board. [Reproduced with the kind permission of the British Banking Association -see link below]

Because I had read many of the documents some time ago, and not got round to all of them, combined with a period when my attention had to be elsewhere, I had confused the guidelines with the submission to the 2007 review of the Banking Code, and both with some parts of the Consumer Protection Regulations.

Albeit, I have this clear now and apologise should I have attributed rule and regulation to a document which it is not in. But the effect of my comments is unaltered.

While the guidelines are given a somewhat detached status, since they are to be neither monitored nor enforced by the standards board, they remain specified good practice. As such they will figure in considerations of the actions of creditors and debt collectors in other places, and cannot be ignored.

The guidelines were of great value when they were published in 2007. While they are not directly included in the Lending Code they are, by this paragraph, made best practice in carrying out the previous 10 paragraphs. This is an invaluable advance for those affected.

While there is no mention of the other vulnerable debtors – elderly and poor – in the new code or in the guidelines, their link in the CPRs should leave no creditor in any doubt that similar care is required for them.

There are 15 main heads in this document and invaluable additions, such as a listing of relevant mental conditions.

In my judgement they leave creditors for no excuse to behave inappropriately in relation to those suffering, once the creditor has been advised of the condition involved. Nor, indeed, against those who fall into the other two vulnerable groups. I would add more to the vulnerable areas.

This is because of the extreme unbalance in the ‘playing field’ between the enormous companies and the defaulting individuals who have no experience or knowledge of the area. For that group of scurrilous companies – some of the biggest of banks – who follow an aggressive path, I feel these regulations still lack the teeth that are needed to protect.

Well, I suppose these gripes are part of my shopping list for the next reviews in all areas!

That said I believe thanks and congratulations are due to all those who have worked extremely hard over many years to make these new paragraphs and their guidelines part of the body of rules.

182. The subscriber should also only initiate court action to pursue the debt as a last resort and when it is appropriate and fair to do so. [Reproduced with the kind permission of the British Banking Association -see link below]

The only time I can see that court action is justified is where it can be clearly shown there is BOTH ability to pay AND wilful avoidance of resolving the matter on the part of the debtor.

Whatever the history of the creation of the debt – and there can be more than one side to this – the issue at the collection stage is about both the position of the debtor, and the reasonable actions to determine resolution.

Now bear in mind that resolution may be achieved in many ways. The debt may be completely written off, without any call on the debtor in the future. It may be frozen on any basis from not chasing it at all, to regular contact; here the intervals of contact should relate the fact that freezing is going to be a response to small likelihood of payment. Annual contact should be sufficient.

There may be token payments, of say £1 a month. But here the use of this should be sparing, as this can cause problems for poor and disabled debtors. It is likely that the debtor has more than one creditor. Not only may the total pounds be noticeable, but the costs of paying can add 50 percent or even more.

The Debt Management Plan is not available where monthly repayments total less than £100 a month. At lower figures there is no way of using an intermediary, including charities, to distribute the total repayment.

Where there are a number of creditors it would be a good move for creditors to organise a clearing house for these payments. And that would permit something even more in keeping with fairness.

A debtor is generally required to treat all their creditors equally. But if only a pound or two a month can be afforded it is hard to divide; unless there is a clearing house that gathers many such payments, doing the computer-easy calculating and accounting, and passing sums on in bulk to the appropriate creditors.

181. If a subscriber has received appropriate and relevant evidence of a customer’s mental health problems they should consider whether it is appropriate to pass or sell the customer’s debt to a third party debt collection agency. [Reproduced with the kind permission of the British Banking Association -see link below]

I can see no justification whatsoever for a creditor using an agency or selling the debt on once it is aware the customer is in the vulnerable groups. Certainly in the vast majority of cases hectoring is not what is required, even less the harassment, worry and fear of these crude methods.

Much, much more is likely to be achieved by a sympathetic and supportive approach. I wonder about the decision making process that has developed the current blind and thoughtless path.

By the very nature of their situation few vulnerable debtors are likely to be in a position to clear a debt immediately. And often their incomes are so inadequate that it is unlikely recovery of the debt is likely.

Where that is the case all blindly cold processes are pure waste of money. At best they are deliberately cruel, and at worst actually sadistic. The latter is in itself a mental health issue, as it happens – but this time on the other side of the debtor-creditor divide.

Of course not all vulnerable debtors are in poverty or poor. But where the only assets are a house, or the means of getting through their day without difficulty, pursuit raises issues of human rights.

Far better, then, to approach all such cases with skill, knowledge, understanding, and sympathy. This form offers support to just that.

At the same time it should not be turned into a requirement in all cases. Where it can contribute and their is agreement to use it is, without question, an invaluable aid in working out the best course of action.

179. The Money Advice Liaison Group (MALG) has produced a Debt and Mental Health Evidence Form (DMHEF) which provides a standardised methodology for advisors and creditors to share relevant information about the customer’s condition from health and social care professionals. [Reproduced with the kind permission of the British Banking Association -see link below]
180. Subscribers are encouraged to consider the DMHEF if it is presented by the customer or their adviser (with the customer’s consent). [Reproduced with the kind permission of the British Banking Association -see link below]

I am not a great one for forms. I find them limiting rather than liberating, and often used to avoid real thought by creditor representatives. Filling them in is often a battle of understanding the intentions of the setter, and wondering if the reader will understand.

However, if kept relatively simple and used as a basis for discussion, thather than an avoidance, a well designed and focussed one can contribute greatly.

And this form is on pointedly directed at cases where the debtor has a number of professionals involved, and enables a gathering of information to advise the debtor on suitable action.

178. If a customer informs a subscriber that they have a mental health problem that is impacting on their ability to manage their financial difficulties, the subscriber should allow the customer a reasonable period (e.g. 28 days) of time to collect and submit relevant evidence to the subscriber. This evidence will help the subscriber to work with the customer,
advice agencies and health/social professionals where appropriate to determine the most appropriate action to deal with the customer’s financial difficulties. [Reproduced with the kind permission of the British Banking Association -see link below]

How one can be both happy and unhappy with a provision at the same time!

The idea that vulnerable debtors need more time is made very plain by this paragraph, and leaves debtors with no excuse for placing unreasonable time limits on them.

But the example of time is not realistic.

Bearing in mind that most debtors with problems are able to quickly arrange a new schedule with their creditors, and the number who have to take time or make explanations is relatively small, there is no real reason for hurry in this kind of case.

Indeed the use of harassing techniques is a costly piece of unkind futility.

In the normal course of events 28 days is not unreasonable for provision of detail information. Often debtors are lucky to have routine responses from creditors in less time.

Unless there is good reason to act otherwise, I always advise that debtors should insist of communication by letter. There are many advantages, which I discuss in my book, and for some – and for many on occasion – the very act of putting something in writing, or collecting it together, is a difficult and slow process.

To a creditor this can look like deliberate procrastination; a strong reason this paragraph is so valuable. Only a specialist staff can actually understand – and it will take experience for them to do so fully – why there is nothing suspicious in delay in some conditions.

But even with these problems many people will want to manage their own affairs. So there is not easy fix of turning all these cases to intermediaries. Indeed, with the best will in the world, intermediaries can be just as lacking in understanding. And they can be too pressured to spend the time that is needs to represent properly.

So, while calling for the training of specialist staff to be a requirement, I welcome this contribution to a better experience for vulnerable debtors.

177. If a subscriber has specialist staff to deal with cases of debt and mental health problems, they should ensure that appropriate mechanisms exist to refer the customer to the appropriate support. [Reproduced with the kind permission of the British Banking Association -see link below]

This is an excellent emphasis on the need to have training to deal with mental health issues, and indeed other issues of vulnerable customers. But the idea that staff who are not trained should deal with them is not a good position.

The mental health field is vast, and understanding the effects and potential effects of particular disorders requires considerable attention. Even more important is the question of the effects of the stress of harassment which is more or less normal in collection procedures and creditor behaviours.

The great value of this section is the fact it has been introduced to the code, which removes the prior behaviour. That behaviour consists mainly of a challenge as to its truth, should anyone reveal to the agent that there are mental health problems.

This discourages the more timid or, for example, any debtor in depression or – as is normal – in shock, from revealing the need for great care to be taken. Apart from the effect being counter-productive to the purpose of collection departments, it can have serious effects in deepening a mental condition.

So I hope there will be strenuous efforts to ensure all in the credit field observe both the letter and the spirit of this new entry into the code.